Russia: Next Elections Critical For Future

Prague, 24 May 1999 (RFE/RL) -- American economic journalist Rose Brady says the next major twist in the developing story of Russia's staggering economy depends on upcoming elections -- to the Duma in December and the presidency in 2000.

And she's hopeful.

Brady, now editor of the European and Latin American edition of the U.S. magazine Business Week, was the magazine's Moscow bureau chief from 1989 to 1993. She covered the collapse of the Soviet Union and the launching -- and then faltering -- of Russia's radical economic changes. Since then, she has visited Russia frequently as a business reporter.

She is the author of "Kapitalizm", a book on Russia's economic struggles of the last decade, recently published by Yale University Press.

In her book, Brady writes of what she calls the "shock of economic freedom" in Russia. It came at the end of 1991 when Soviet President Mikhail Gorbachev resigned and the communist system fell, and in the first week of 1992 when Russia's new leadership dropped most price controls and the cost of goods increased by multiples of eight to 20.

It was a triple revolution, she says. There was the starting of a new democratic political system, the launching of a new capitalist economy, and the ending of Russia's imperial status.

Brady spoke recently by telephone with RFE/RL:

"Basically, the story of the last seven years is a story of unrealistic expectations and miscalculations, although I think that when they started out there were some good intentions. I still believe that Russia is on a very tumultuous, zigzag, difficult path from a socialist, centralist economy to some version of a capitalist, market-oriented economy."

In "Kapitalizm", the author recounts how the first advocate and architect of radical economic reform for Russia, a 35-year-old economist and journalist named Yegor Gaidar, commanded a small group of young economists. They sought to free prices, trade and the currency, and to permit ownership of private property.

Gaidar was the principal author, Brady says, of Russian President Boris Yeltsin's October 1991 speech to the parliamentary assembly. In that speech, Yeltsin said this: "We have defended political freedom. Now we have to give economic [freedom], to remove all barriers to the freedom of enterprises and entrepreneurship, to give all people possibilities to work and receive as much as they earn."

With Gaidar as his deputy prime minister in charge of economics and finance, Yeltsin set out to turn those grand words into strong actions.

A number of blunders followed. First, Yeltsin promised that, although things would be hard at first, Russians would experience improvements in their lives at the end of six months. Disillusionment set in when reforms proved far harsher and improvement took far longer than people expected.

Then Gaidar, whose own expectations were for five years of pain, failed to anticipate the backlash of Russian industry elites. Under opposition pressures, he delayed liberalization of energy prices. Opponents of the reforms used the time to entrench even further. By mid-1992, Yeltsin had diluted Gaidar's power, and the period of radical reform shock treatment was ended.

In early 1992, Brady points out, the state owned nearly everything in Russia. Privatization was as important to economic reform as freeing markets and prices. Yeltsin chose another young leader, Anatoly Chubais, to lead the privatization effort. She says Chubais was determined to create an army of Russian shareholders. But Chubais, too, ran into more powerful resistance than he anticipated.

In order to keep privatization moving at all, Chubais compromised. He agreed to allow factory directors and workers to acquire up to 51 percent of their enterprises, at favorable terms.

Later, Brady recalled, Gaidar was to speak to her of this phase as a serious, but perhaps unavoidable, misstep:

"I asked him to reflect back on what had happened in the economy and how it was that Russia had developed this sort of oligarchical, corrupt system. He said, 'We had two choices -- to try to destroy the elite by force or to compromise. The first strategy risked civil war. That's why we were prepared to compromise. So we allowed the elite to exchange their power for property."

The trouble was, of course, that there was no exchange at all. A small oligarchy of financiers and industrialists acquired much of the wealth of the Russian nation and, rather than exchanging their power, they increased it.

In Kapitalizm, Brady describes the phony loans, the official corruption, shell companies, tunneling, and legal, semi-legal and downright criminal devices that enabled the wealthy, powerful few to siphon off Russia's wealth and, in many cases, to ship it to secret bank accounts out of the country. But even so, the writer remains optimistic about Russia.

If she were writing Kapitalizm now, Brady said in the interview, she would investigate more deeply how much the corruption and outright theft -- in contrast to mere misfortune and mistakes -- contributed to the disaster that has struck the country's economy.

"What turn the story takes next will, I think, depend a lot on who wins the presidential elections next year. And to what extent the Duma election in December produces a conclusive result. For example, if [Moscow Mayor Yuri] Luzhkov's backers do very well in December and then Luzhkov wins next June. That means you'll have a Duma and a president that are more or less on the same track."

Brady said the worst case she can imagine would be election results that created a governing coalition of communists and ultranationalists.

A best case, she said, might be the coming to power of a Grigory Yavlinsky, reform-minded economist and head of the Yabloko Party. But even in the barely imaginable event of a Yavlinsky electoral victory, there would be doubt about his ability to summon the force necessary to press his ideas.

A scenario that is both optimistic and likely, she said, is the capturing of the Duma in December by followers of Moscow Mayor Luzhkov, and then a subsequent victory by Luzhkov in the presidential elections in the summer of 2000.

Luzhkov has developed what Brady calls "state capitalism" in Moscow -- a unique, peculiarly Russian economic system. Under Luzhkov's administration, Moscow has prospered like nowhere else in Russia with a largely free, market-driven economy, but one in which the government retains substantial stakes in many of the city's important businesses and industries.

It is conceivable, she said, that Luzhkov would name Yavlinsky as his minister of finance.